More government regulations ‘redundant’, say credit card companies

Credit card companies and bankers Thursday rejected as “redundant” the need for more government regulation of their credit and debit card operations.

There is a voluntary code of conduct governing their card operations with which they all comply, they told the Senate banking committee, which is studying legislation that would impose more government regulation over their card fees and interest charges and extend scrutiny of those operations to the Office of the Superintendent of Financial Institutions.

However, the banking and credit card executives were warned by one senator that it’s not a question of whether there will be more government regulation of their card operations but when.

And several senators, citing complaints by other witnesses about high annual interest charges on credit cards and high and rising merchant fees, said the voluntary code of conduct is not enough in a market dominated by two major credit card companies, VISA Canada and Mastercard Canada.

VISA Canada head Tim Wilson, however, argued that VISA in fact faces “formidable and substantial competition,” citing the option for consumers to use cash, cheques, preauthorized debits, retail credit cards, and other forms of payment.

He and the other bank and credit card company executives also argued that the marketplace, not government, should regulate their operations.

Senator Vim Kochar, a member of the committee, agreed, calling the Bill S-201 a “unnecessary intervention in a free market economy,” and noting that retailers and consumers can change credit card companies or banks if they don’t like the service or charges.

But the sponsor of the bill, Senator Pierrette Ringuette, and several other senators disagreed, referring to the two large credit card companies as a “duopoly.”

Ringuette also suggested that the card companies and Canadian Bankers Association were in “collusion” in making the claim that the Senate bill was redundant – an accusation she later withdrew.

It’s “bizarre” that they would all make the same claim, she said, arguing that the voluntary code was not working.

“We’re paying those credit card companies $7 billion a year too much,” she said after the committee hearing, adding that bill is relatively tame and doesn’t go as far as legislation in other countries, such as the U.S. and Australia, which have put ceilings on credit card charges.

The voluntary ‘Code of Conduct for the Credit and Debit Card Industry of Canada’ was introduced earlier this year by Finance Minister Jim Flaherty and will be fully implemented by early next year.

“Mastercard believes the approach presented by the code should be given time to work,” the credit card company said in its statement to the committee, presented by president Betty De Vita.

VISA Canada president Tim Wilson added that the code is only one of several initiatives that have been enacted to regulate credit and debit card operations.

Under the Payment Card Networks Act passed just this summer, the Financial Consumer Agency of Canada already has responsibility for monitoring and reporting on the implementation of the code by card companies and banks, he noted.

Further, the government has launched a task force to look into the whole system of electronic payments which is due to report its findings at the end of next year, VISA’s Wilson continued.

“With the code and task force in progress, we believe that the concerns behind Bill S-201 have already been addressed,” he said.

Nancy Fung, vice president banking operations with the Canadian Bankers Association also expressed concern that the bill would shift the focus of the Office of the Superintendent of Financial Institutions from its key role of overseeing the health of the banking system to monitoring credit card operations.